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US Federal Reserve raises rates - business live US Federal Reserve raises rates - as it happened
(35 minutes later)
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With the press conference over, Anna Stupnytska, global economist at Fidelity International, says Powell struck a more doveish tone than expected:
The US Federal Reserve hiked rates at the September meeting, as widely expected. The overall tone of the statement was upbeat, although Chairman Powell chose to strike a relatively dovish tone at the press conference, presumably making room for more flexibility around the future policy path given the multitude of uncertainties.
Read Chairman Powell's opening statement from the #FOMC press conference (PDF): https://t.co/iftM7Bdusx
“It’s hard to see much happening at this point”, Powell says, when asked about the impact of trade tensions between the US and China.“It’s hard to see much happening at this point”, Powell says, when asked about the impact of trade tensions between the US and China.
He says there are areas of concern however: loss of business confidence, which doesn’t appear to gave materialised yet, and financial market reaction over the longer term.He says there are areas of concern however: loss of business confidence, which doesn’t appear to gave materialised yet, and financial market reaction over the longer term.
The main worry, Powell says, is “where is this going?”The main worry, Powell says, is “where is this going?”
Powell says the Fed is constantly weighing up the risk between moving too quickly to raise rates and therefore snuffing out the recovery, and moving too slowly, therefore allowing the economy to overheat.Powell says the Fed is constantly weighing up the risk between moving too quickly to raise rates and therefore snuffing out the recovery, and moving too slowly, therefore allowing the economy to overheat.
That’s why the central bank is moving gradually, he says.That’s why the central bank is moving gradually, he says.
Jerome Powell, chairman of the Federal Reserve is giving a press conference. He begins by outlining the strength of the US economy.Jerome Powell, chairman of the Federal Reserve is giving a press conference. He begins by outlining the strength of the US economy.
He says the financial system is now stronger and better placed to deal with a shock than it was pre-crisis.He says the financial system is now stronger and better placed to deal with a shock than it was pre-crisis.
The Fed’s latest growth projections show the US economy continuing at a steady pace through 2019, with GDP growth forecast at 2.5% next year before it slows to 2% in 2020 and to 1.8% in 2021, as the impact of the recent tax cuts and government spending fade.The Fed’s latest growth projections show the US economy continuing at a steady pace through 2019, with GDP growth forecast at 2.5% next year before it slows to 2% in 2020 and to 1.8% in 2021, as the impact of the recent tax cuts and government spending fade.
David Herrick, chief executive of Moneycorp’s US business, says the markets had priced in today’s rate hike:David Herrick, chief executive of Moneycorp’s US business, says the markets had priced in today’s rate hike:
The dollar and wider financial markets have had a muted reaction to today’s second straight quarter of dollar-supportive rate rises from the Fed.The dollar and wider financial markets have had a muted reaction to today’s second straight quarter of dollar-supportive rate rises from the Fed.
The market outlook is for these to continue through the final quarter of this year and into 2019 as the economy strengthens.The market outlook is for these to continue through the final quarter of this year and into 2019 as the economy strengthens.
Reaction to the Fed decision by Kully Samra, UK Managing Director of Charles Schwab:Reaction to the Fed decision by Kully Samra, UK Managing Director of Charles Schwab:
This hike follows strong GDP figures for the first half of the year and yet again demonstrates the Fed’s faith that it can continue to raise rates gradually without slowing economic growth.This hike follows strong GDP figures for the first half of the year and yet again demonstrates the Fed’s faith that it can continue to raise rates gradually without slowing economic growth.
Trade concerns are being counter-balanced by wage inflation, with average hourly earnings rising 2.9% year-over-year as of August. These numbers were welcomed in the latest jobs report and crucially do not suggest over-heating, meaning the Fed has little need to crimp economic growth.Trade concerns are being counter-balanced by wage inflation, with average hourly earnings rising 2.9% year-over-year as of August. These numbers were welcomed in the latest jobs report and crucially do not suggest over-heating, meaning the Fed has little need to crimp economic growth.
A December hike seems likely, but the likelihood could ebb and flow depending on incoming economic data between now and then.A December hike seems likely, but the likelihood could ebb and flow depending on incoming economic data between now and then.
Dollar drops, stocks move higher after the Fed hikes https://t.co/SraUo4rJXp pic.twitter.com/Cw2lMhKOM2Dollar drops, stocks move higher after the Fed hikes https://t.co/SraUo4rJXp pic.twitter.com/Cw2lMhKOM2
Here is what the Fed policymakers had to say:Here is what the Fed policymakers had to say:
Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low.Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low.
Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.
The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent.In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent.
The Fed has removed the key term “accommodative policy” from its accompanying statement, signalling more rate hikes to come.The Fed has removed the key term “accommodative policy” from its accompanying statement, signalling more rate hikes to come.
The central bank’s dot plots show 12 of 16 officials favour four rate hikes in 2018, making another US rate rise in December likely.The central bank’s dot plots show 12 of 16 officials favour four rate hikes in 2018, making another US rate rise in December likely.
Fed raises its economic growth outlook for this year and next. Dot plots suggesting 3 more rate hikes next year as well. https://t.co/m6hLixaYZJFed raises its economic growth outlook for this year and next. Dot plots suggesting 3 more rate hikes next year as well. https://t.co/m6hLixaYZJ
The Federal Reserve has raised US interest rates by 0.25 points, to a range of 2-2.25%, as expected.
Federal Open Market Committee statement: https://t.co/M63ecS10I3 #FOMC
FOMC in 6 minutes.... pic.twitter.com/fvehrf7loE
In other news, the chancellor, Philip Hammond has announced the budget date, which is Monday 29 October.
Budgets traditionally take place on a Wednesday, but the chancellor has selected a data to make sure it does not clash with the final stage of Brexit negotiations in November.
I’m pleased to announce the Budget will take place on 29 October.I’ll set out how our balanced approach is getting debt falling while supporting our vital public services, and how we are building a stronger, more prosperous economy. pic.twitter.com/FKafI3kLO9
Expect the Federal Reserve to raise interest rates for the third time this year—and publish forecasts projecting another move in December pic.twitter.com/VbGGARsapU
Investors on both sides of the Atlantic await the US Fed decision tonight, but most will be more interested in the Fed’s “dot plot”, showing where policymakers thinks rates are going in future months.
Neil Wilson at markets.com explains:
The Federal Reserve will raise rates today – that much is certain. There is a roughly 95% chance of the fed funds rate moving up to the 2-2.25% target, which means the decision itself is well baked in to market pricing. This would be the third interest rate rise this year and indicators still point firmly towards a fourth by December.
Therefore, market attention is on a number of other elements contained in both the projections (dots) and the monetary policy statement.
The key question is what monetary policy in 2019 looks like. Currently the median dot plots point to three hikes in 2019 but there are a number of factors that might tempt the Fed to slow its pace next year. The fiscal put should start to lessen, while tariffs could impact on its forecasts for growth. However a lot depends on the extent to which the Fed sees tariffs pushing up prices as well.
Similarly, quite why the Fed would slow up its pace of tightening from its June projections seems unclear. The question really is what has changed in the intervening months to make it beat a more dovish drum. The answer is, with the exception of further concerns about trade, precious little.
US markets edged higher on the opening bell:
Dow Jones: +0.1% at 26,521
S&P 500: +0.1% at 2,918
Nasdaq: +0.1% at 8,017
Carolyn Fairbairn, CBI director-general, says that Labour is thinking up policies that work on paper but not in reality because the party lacks business experience.
Responding to Jeremy Corbyn’s closing speech at the Labour Party Conference, Fairburn said:
Much of Labour’s vision for a more sustainable and fair country is absolutely right. Business not only supports it but holds many of the keys to making it a reality.
From onshore power to affordable childcare, the Labour leader’s speech echoes calls from firms for more action on climate change and to unlock productivity.
But this will only happen if Labour invites business into the tent. Continual public barbs and backward-facing policy are deterring entrepreneurs and investors, at a time when we need them most. Profit and enterprise are the basis of jobs and growth, with firms paying enough tax to fund the NHS every year and much more besides.
Too often lack of business experience in the Labour Party fuels ideas that are appealing on paper or conference platforms, but unworkable in reality. Far better to take up business’ open offer to work together. Far better to recognise and build on strides already made, from cutting emissions in the power sector by half since 2010 to employee ownership schemes already operating in almost 9 out of 10 FTSE 350 firms.
Policy built collaboratively will help build a fair, progressive and pro-enterprise Britain. Policy built on ideology and diktat will do the opposite. They will harm those who can least afford it by driving down investment, productivity and pay.
US futures are higher ahead of tonight’s expected Fed rate hike, with bank shares among the gainers.
Shares in JP Morgan, Citigroup, Wells Fargo and Bank of America were all up as policymakers prepare to announce what would be the third US rate rise in 2018.
Here is how markets look across Europe:
FTSE 100: -0.1% at 7,499
Germany’s DAX: -0.2% at 12,346
France’s CAC: 0.3% at 5,493
Italy’s FTSE MIB: -0.3% at 21,593
Spain’s IBEX: -0.2% at 9,511
Europe’s STOXX 600: flat at 384
More on the AA, which has blamed a UK “pothole epidemic” caused by the “beast from the east” and low road maintenance spending for a sharp fall in half-year profits.
The roadside assistance service had to deal with 1.91m breakdowns in the six months to July, up 8% from a year earlier. The AA estimates that potholes are costing drivers and their insurers at least £1m a month due to big car repair bills.
The Local Government Association says councils are fixing a pothole every 21 seconds but it will still take more than £9bn and more than a decade to clear the local roads repair backlog completely, after decades of underfunding.
The government’s austerity programme since the financial crisis made things worse. Councils have had their real spending power (government funding plus council tax) reduced by 29% between 2010/11 and 2017/18.
Simon Breakwell, the AA chief executive, said this morning:
We’ve had a 15-year high in breakdowns, we had the worst winter back to back with the hottest summer, all of which causes everyone to drive their cars and more cars on the road generally means more breakdowns.
Sometimes you have a rubbish winter and sometimes you have a really hot summer but it’s rare that you have a rubbish winter back to back with the hottest summer.
Oil prices have eased off today, but are still on course for a fifth consecutive quarterly gain as Iran sanctions keep prices at near late 2014 highs.
Brent crude is down 0.3% or 24 cents at $81.63 a barrel, having risen to $82.55 on Tuesday.